Friday, Oct 16, 2009, 12:48 GMT
FX trends tiring a bit here: risk of further consolidation here ahead of the weekend.
After posting strong new high overnight, AUDUSD swoons on weak equity market.
MAJOR HEADLINES – PREVIOUS SESSION
- New Zealand Sep. Non-resident Bond Holdings fell to 72.1% vs. 74.5% in Aug.
- Switzerland Aug. Retail Sales out at -1.0% YoY vs. +0.8% expected
- EuroZone Aug. Trade Balance fell to 1.0B vs. 4.9B expected and 6.0B in Jul.
- Canada Sep. CPI out at 0.0% MoM and core CPI out at 0.3% MoM, vs. +0.1%/+0.2% expected, respectively
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
- US Aug. TIC Flows (1300)
- US Sep. Industrial Production (1315)
- US Sep. Capacity Utilization (1315)
- US Oct. Preliminary University of Michigan Confidence (1400)
- US Fed's Fisher to Speak (1410)
- New Zealand Sep. Performance of Services Index (Sun 2130)
- UK Oct. Rightmove House Prices (Sun 2301)
- Japan BoJ Meeting Minutes (Sun 2350)
- Japan BoJ Meeting Minutes (Sun 2350)
- Australia RBA's Lowe to Speak (Mon 0200)
- Japan Sep. Nationwide Department Store Sales (Mon 0530)
The strong earnings parade from names like Google, IBM and GE was spoiled today by an ugly report from Bank of America today, as the largest US bank reported a larger than expected loss on difficulties with consumer defaults. This bank is heavily exposed to the misery in the "present situation" types of indicators we have discussed much of late and that continue to show maximum pain. The bank will likely continue to show weak results until employment and wages recover. Still, the fact that the market decides to focus on the one weak exception rather than the overall theme of stronger than expected earnings and fairly robust outlooks suggest we could be in for some short term consolidation here in the trends in place. Already, USDCAD is up above 1.0400 on fairly weak CPI data (though the core was higher than expected) and AUDUSD has tumbled more than a percent and a half from its fresh high posted overnight.
If, then....
If equities finally see a much-needed retrenchment of two or three percent here in the short term, we could see further weakness for the shortest term in the commodity currencies, with the EUR following suit. Our favorite sentiment indicator on the weak USD trend - Gold - has shown little interest in pulling higher over the last couple of sessions - the gold rally needs to get back on track to see new lows for the greenback. In the meantime, the precious metal has a bit of room to consolidate further without affecting the overall trend.
The JPY crosses have responded very strongly to the latest move higher in bond yields , but a retrenchment in risk could finally bring a bit of stabilization to the bond market, and especially the non-USD JPY crosses are looking extremely stretched here in the short term and could see a bit of a correction lower as well if the bonds put up a fight with the key US 10-year benchmark trading close to the pivotal 3.50% level.
Latvia and SEK
The still desperate situation in Latvia has been weighing on the Swedish krona for some time now, and the SEK has not participated in the latest wave of risk appetite as it has normally done in the past. Swedbank, the biggest lender in the country, was out today saying that it could manage a 15% devaluation in the Latvian currency. This discussion touched off new lows for the krona since July as EURSEK traded above a key resistance area today around 10.37. On a valuation basis, SEK is still worth a look, the Latvian situation notwithstanding, especially if we are to believe that the economic recovery story is to last into the New Year.
Yuan to move again?
The US Treasury Department did not call China a currency manipulator, but did point out that China's piling up of foreign exchange reserves threatens to slow the reduction of global imbalances. Speculation is increasing that the Chinese will begin to let the Yuan increasing, though the Chinese authorities have given on sign of a change of heart after repegging the CNY to the USD last fall. Such a move to manage the yuan stronger could see significant Euro weakening as the currency would see far less pressure from reserve diversification flows.
Today's data outlook
The TICs data today has not been much of a market mover of late, as the data reported is more indicative of what was driving currencies two months ago rather than having any relevance for today. Industrial Production and Capacity Utilization need to accelerate their anemic rebound if we are to build momentum on this recovery story - the output gap is still gigantic. The bigger spotlight for the day is reserved for the University of Michigan confidence number after last month's Michigan improved by leaps and bounds, even as the Conference Board number surprisingly dropped. Meanwhile, the more "present situation" oriented weekly ABC confidence number has remained mired at very low levels for a long time. The Fed's Fisher is out speaking later - he is a dove, but is not a voting FOMC member.
Chart: AUDUSD
A climax reversal after AUDUSD posted a new high overnight suggests some room for consolidation to 0.9000 or lower. The pair has lately been outrunning fundamental underpinnings and is likely to remain a high-beta instrument representing risk appetite.
More analysis: Saxo Bank Market News & Analysis
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